B.C.'s new second mortgage program is an old Socred idea with new money

For decades before the Social Credit government of Bill Vander Zalm wiped it out in the late 1980s, the province ran a B.C. Second Mortgage program that gave low- or no-interest mortgage loans to homeowners

If the provincial government’s new mortgage assistance program for first-time homebuyers sounds familiar, that’s because it is certainly not new.

For decades before the Social Credit government of Bill Vander Zalm wiped it out in the late 1980s, the province ran a B.C. Second Mortgage program that gave low- or no-interest mortgage loans to homeowners who would otherwise not meet minimum lending qualifications.

The concept, brought in by the Socred government of W.A.C. Bennett and carried on through successive New Democrat and Socred governments, created more than 50,000 second mortgages and pumped hundreds of millions of dollars into the real estate economy.

By the time Vander Zalm’s government sold it off in 1989 to the Bank of Montreal as part of a wider target of privatizing many government programs, it had a portfolio of 47,000 mortgages worth $300 million. Then-social services and housing minister Claude Richmond said at the time the “sale of these loans is part of our government’s initiative to return responsibility for this type of lending to the private sector”.

On Friday, former Premier Vander Zalm said he doesn’t believe the new program will be any more useful or effective than the old one. But on one point he complimented Premier Christy Clark, saying it clearly was a useful political ploy as she heads into a May election.

“Well, it’s always a good thing just ahead of an election in that it kind of dulls or numbs any opposition remarks that you’re not doing enough to help young people get into a home,” Vander Zalm said. “It gives you an opportunity to say ‘what a great job we’re doing. We’ve cut our foreign investment and now we’re doing this’.”

But Vander Zalm said backing mortgages with taxpayer funds, particularly for those who might otherwise not qualify, isn’t sound fiscal policy.

“Politically, it is not a bad thing. But as far as value for investment, it is not that great,” he said. “It won’t make that much of a difference. It may even, as some are suggesting, encourage people to get in when perhaps they aren’t ready for it.”

Under the new program, the province will loan up to five per cent of cost, up to $37,500 on a home worth a maximum of $750,000, as long as the buyer matches the amount. But in order to qualify, the buyer has tobe pre-approved for a Canada Housing and Mortgage Corporation-insured loan. Those high-ratio loans top out at 90 per cent. The 25-year provincial mortgage would be interest free for the first five years, and would remain on the title behind the bank first mortgage. The homeowner would be required to live in and keep their home for that period.

“It’s a little bit different but the essentials of it are the same. We want to be a partner in your home because we want people who are struggling right now renting to find their way into home ownership and we know it’s tough,” she said. “So I think British Columbians expect their government to be there for them and we want to be.”

The program, which comes into effect next year, was poorly reviewed by Tsur Sommerville, a professor of real estate economics at UBC’s Sauder School of Business.

“I don’t think this is a good idea and the reason I think that is that lots of people who don’t need the help are going to get it for a very small number of people who benefit from it,” he said.“The people who most need the help are the people who can’t save enough to meet that (CMHC) clearance.”

Somerville said the program will inevitably push up housing prices because of demand, and that some applicants may end up spending themselves into houses they otherwise couldn’t afford.

“Higher prices for sure are an outcome because it is going to increase demand. There is the potential adverse effect that the more this pushes up prices the more there are people who get priced out of home ownership.”

Sommerville said there are more effective ways of assisting first-time homebuyers, including existing exemption of the property transfer tax on new homes under $750,000, and on existing homes worth less than $450,000.

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